These excerpts taken from the TLAB 10-K filed Feb 26, 2008.
Q. Whats happening in the telecom equipment industry?
A. Michael J. Birck, chairman of the board: The industry is feeling the aftershock of consolidation, which has reduced the number of service-provider customers and increased the purchasing power of the largest among them. For example, four of our largest customers in 2005 are now one customer with considerable leverage over vendors.
After customers consolidated, some delayed network expansion and upgrades, which was especially evident among North American mobile providers. Moreover, we have seen increasingly aggressive procurement contracting by both wireless and wireline service providers in North America, resulting in paper-thin profit margins for many vendors. Since three-quarters of Tellabs revenue comes from North America, we were particularly hard hit during 2007.
Responding to service-provider consolidation, some of Tellabs competitors have joined forces. Our markets have thus become hypercompetitive, with a few very large and dozens of smaller vendors fighting over less business. The inevitable result is increasing pricing pressure that drains profits out of our sector. Tellabs was one of a handful of companies whose network equipment business stayed in the black last year. That meager profit notwithstanding, we are far from satisfied with our 2007 results.
A. Michael J. Birck, chairman of the board: The industry is feeling the aftershock of
After customers consolidated, some delayed network expansion and upgrades, which was especially evident among North American mobile
Responding to service-provider consolidation, some of
A. Timothy J.
The transport market is shifting to new technologies built into the Tellabs 7100 OTS. Revenue from the Tellabs 7100 system
(Source: Infonetics Research)
TELLABS ANNUAL REPORT 2007
FACE="Times New Roman" SIZE="2">9
Management Answers Your Questions, continued
Daniel P. Kelly
Global ProductsSTYLE="margin-top:12px;margin-bottom:0px; text-indent:4%;padding-bottom:3px;line-Height:95%; vertical-align:top">However, as our product mix shifted toward new products faster than expected, Tellabs gross
profit margins declined 10.5 percentage points. Products that are early in their life cycles often carry lower margins than more established products. We sold fewer Tellabs® FACE="Times New Roman" SIZE="2">5500 digital cross-connects, an established product; we sold more Tellabs 7100 OTSs, a new product; and we sold more Tellabs 1600 ONTs at negative margins. As a result, earnings fell 65% to 15 cents per share. As we
begin 2008, we are aggressively focused on improving Tellabs performance.